Making the Most of Your Most Valuable Financial Asset

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I've noted previously that your career is your most valuable financial asset. But it's been awhile since I've detailed the tremendous impact you can have if you manage your career effectively versus simply let it go on auto pilot. Consider this post a reminder that what we do with our careers can make a tremendous amount of difference to our net worths.

Let's begin with the following illustration -- four workers, all starting their careers earning $20,000 a year. Throughout the course of their working lives, they get annual raises at different rates as follows:

• “A” averages a 2% raise per year
• “B” averages a 4% raise per year
• “C” averages a 6% raise per year
• “D” averages an 8% raise per year

Not much difference, right? Simply a few percentage points. Oh, but these differences really add up. Let’s look at the numbers:

• At the end of 40 years, A makes $43,295 and has earned $1,208,040 during his career
• At the end of 40 years, B makes $92,327 and has earned $1,900,510 during his career
• At the end of 40 years, C makes $194,070 and has earned $3,095,239 during his career
• At the end of 40 years, D makes $402,306 and has earned $5,181,130 during his career

You can see that the differences are substantial. “A” didn’t manage his career. He simply went with the flow and got raises that were commensurate with an employee that goes with the flow. He averaged raises that were at the level of inflation or less.

On the other hand, “D” was aggressive in how he grew and managed his career. He took the steps necessary to average 8% pay increases by getting raises and promotions throughout his career. And he ended up making almost 10 times what “A” did in salary at retirement and almost $4 million more than “A” over the course of his career.

This simple illustration shows the difference between someone who actively manages his career and someone who doesn’t. The differences are enormous.

So you’re asking, how can I be more like “D”?

It's simple, really. If you want to get paid more, you need to deliver more to your employer. Or as I put it, if you want raises and promotions, you need to demonstrate that you deserve raises and promotions. You do this by determining the expectations for your position, working to overperform against those expectations, and documenting your success along the way. Then when you ask for a raise or want to be promoted there's lots of supporting evidence for why you should be granted your request.

I can hear the objections (aka excuses) already, so let me address them right away:

• Objection #1: But the economy is in the tanker. No one in my company is getting any sort of pay increase. There's no way I can get an above average pay bump.

Yes, there is. If you go above and beyond what's expected of you, you can get a good raise no matter the economic conditions. Here's an example of how to do this.

• Objection #2: Getting an 8% raise every year is completely unrealistic. No one gets an 8% increase every year.

I didn't say that "D" got an 8% raise EVERY YEAR, I said he AVERAGED an 8% increase every year. This means sometimes his salary increase was above 8% and sometimes it was below 8%, but in the end it averaged 8%. If you need an example of what I mean, check out How You Grow Your Income by 10% or More a Year. 

And as far as 8% being unrealistic, I have two things to say:

1. No, it's not, as I've shown. I've also given additional thoughts in Five Steps to Six Figures in Seven Years.

2. You don't HAVE to get to 8%. There's nothing magical about 8%. If you simply move from 2% to 6% you're going to earn almost two million dollars more -- which isn't bad at all, huh?

• Objection #3: But that solution takes a lot of time, effort, and hard work.

Yeah, so? No one is going to give you a few extra million dollars for doing nothing. If you'd rather take the easy path, that's your choice. Just don't complain to me when you're barely scraping by.

One final comment: If you want to super-charge your earning potential and make even more of your career asset, you can do two things:

• Average greater than 8% increases throughout your career
• Start at a higher salary than $20k per year (which is a very realistic goal for many people)

Do these two things and you'll see tremendous gains in the production from your most valuable financial asset.

Comments

[Money Reasons]

While I'm not speaking from experience, I was wondering what you thought about job hopping to get up to an higher level of pay?

Sometimes the dynamics at the place you work at are bad or practically impossible to advance because of one reason or another. So maybe it's better to looks elsewhere for that 8% (or really much higher) raise in pay!

Where I work at, a lot of both lower and upper management left their jobs at one level (let's say 10), and then have become rehired (at my company) at a higher level (14). While this doesn't make sense to me, it has happened a lot where I work at!

[FMF]

Money Reasons --

I think leaving a company for another job that pays more/offers more challenges/etc. is a viable way to grow a career and income.

[texashaze]

@Money Reasons - As I sit home for one week in between jobs, I anticipate the nearly 20% raise I'm getting. To answer your question, changing jobs is one of the best ways to get a raise if it is not viable with your existing employer.

BTW, if you are a user of LinkedIn, take a look at various executives or upper mgmt at your business or similiar. You will notice that an overwhelming majority only stay in a job for 2 to 4 years. It's typically not the 25+ year employees getting the higher paying jobs. These are the facts. I don't agree with this tactic as the values I was raised on were to stay loyal to a company for the long haul. However, I've conceded to move on for the money and more importantly the promotional opportunity.

[BibleDebt]

There is something to say for staying in a position a while and becoming an expert on the material and on the organizational culture. This can be a way to advance over time at the same employer. You may lose ground if you jump around to much, especially in a smaller market.

[Jimmy]

I've only been out of school since 2003, but I have averaged somewhere between 12.22%-21.73% pay increase per year. The reason for the range on percentage is because I'm not sure how to calculate the figure... 12.22% does not take into consideration bonuses which are based on the previous years performance or my initial 'intern' hourly pay while I completed my last semester of my MBA program. The 21.73% does include the large increase in pay to an official position and the bonuses I received.

I have been with the same company the whole time and still feel like there is a big opportunity for growth.

[Paul]

This assumes that you can get your manager to give you a clear set of objectives to exceed. I have consistently run into the issue where I cannot get a firm, clearn set of objectives to exceed from my managers and currently am having the issue where I have contradictory objectives (they want me to literally do two jobs at once). At best, I get a few measurable objectives within a larger set of objectives that I can clearly exceed. Others, I say I exceeded come annual reviews, but am told that I did not exceed them AS MUCH as my peers, or that I cannot expect a top performance rating in my first year in a role. I'd appreciate folks' thoughts on these situations...other than clearly needing to leave my current position and/or company.

[FMF]

Paul --

"other than clearly needing to leave my current position and/or company."

I think you answered your own question...

If someone will not give you something to shoot for, how do you know you're doing what they want or not? If the company/boss is that dysfunctional, I would certainly be looking at opportunities with other firms.

[jim]

Getting 8% average raises long term may require getting into management.

You don't necessarily have to jump around from job to job. I've averaged 7% annual increases over the past decade all at the same job. And that includes company wide wage freeze last year. For me the key has been getting promotions. Three promotions have gotten me raises of 15-30%. Without the promotions my raises have averaged about 3%. But to keep getting promotions I'm going to have to climb up to the management ranks.

[Mike Hunt]

If you only leave when jumping for a promotion or big salary increase that helps.

I started my career as and Engineer I, got promoted to Engineer II.

Left my first company for a Customer Focus Manager position, got promoted to
Senior manager at the company.

Left the second company for a promotion as an Operations Director at a small start up. The company went belly up and I was on the unemployment list.

Turned down several manager level jobs (tough with no income) until I got a Quality & Continuous Improvement Director title- stayed with that company for 4 years in the same title but took on a lot more responsibility - from a single specialist with dotted line reports to managing an organization of 13 direct reports with 90 people total.

Left the fourth job for a position as a Managing Director running a factory with 600 people. After 2 years on an expat contract I was looking for something else.

Job number six is as a CEO of a small company ($50 million USD a year) where I've been working the past two years. Still learning and building up my skills, hopefully the career will continue to grow as I'm 36 at present. Even if things plateau out it would still be ok.

The key is, keep pushing, try your best, and eventually you will get lucky. I realize when I was making my moves the market was better but I did have to deal with the recession of 2001 - 2002 when I was out of a job and the 2nd recession in summer 2008 before I got my current job. If you are hard working and patient enough you will get your lucky break.

-Mike

[Celany]

I can only speak for the field I'm in (Fashion, I'm a Sr Technical Designer; I make clothing fit). I've averaged about an 12% raise each year - BUT to do that, I had to do a lot of tough things:

1) My first three years in fashion, I changed jobs each year. My starting salary was 37k. By job 3, I was making 65k

2) I ALWAYS documented everything I was doing, & always went above & beyond. Which, to be honest, wasn't extremely difficult. I think that a lot of good workers don't realize how much they do that goes "above & beyond" & document it properly.

3) After job 3 gave me a few crappy raises (I stayed there for 3 years), I went out & interviewed around & found another company that wanted to hire me to do the same job for 10k more. I took that offer back to the company that I was working for & they matched it. This is a very important point - IF you are a good worker, you should know that most large companies keep a fund of money to "retain talent". So if you find a new job & go back to your company & ask them to make a counter-offer (& IF you're a great employee), they often will. I find that to be HUGELY underutilized by good workers.

4) My current job gives a graduated bonus, based on how well we do. My first few years there, we got huge bonuses, because they'd under-evaluated how well we'd do. Now that they're catching up, I'll change jobs soon. This job change will be the first time I look for a job that's six figures (before bonus).

If you're willing to be uncomfortable & push yourself, the gains can be amazing. But it's HARD. Everytime I've interviewed for a new job, it's exhuasting - researching the company, tweaking my resume & portfolio to highlight the things that are aligned with that company, selling myself through multiple interviews, that's all hard, exhausting work. Going back to Job 3 & telling them they need to raise my salary 10k or I walk was also nerve-wracking; I barely slept that week, while they were "thinking".

But in the end, it was well-worth it. I make about 30% more, base salary, than most of the people that I started out with. AND, over the years, I've pushed for signing bonses with companies - I have an extra 10k (pre-tax, final amount was less) socked away & invested, due to those signing bonuses.

Because I live well below my means, I've got two choices right now: I could have enough money to retire in about 10 years, if I keep pushing the way I've been pushing (I'm 30). OR, I can start taking a year or two off, as I feel like it, & still have the money to have a compfortable retirement in about 15 years. Those are great choices to have, and well worth all the pushing & hard work I've done.

[FMF]

Celany --

Great, great comment! Congrats on reaping the rewards from your hard work.

[fin]

Definitely pays to make yourself more valuable to your company. I offered to help maintain my small firms website, and as the boss is a bit of a technophobe, he now views me as a bit of an asset. Hence a very welcome pay rise.

[Julie]

I work for the state. There's no such thing as merit raises; only seniority and the budget count. Suggestions?

[FMF]

Julie --

In situations where the choice is as you've detailed above, you need to compare the value of staying in a field/company that promotes like it does versus going to another field/company that promotes based on ability.